Governance

Hong Kong Votes, Beijing Glowers

Johnny Lam, a 76-year-old Hong Kong resident, defied China’s leadership in Beijing by casting a vote on June 22. Lam is one of hundreds of thousands of Hong Kong residents who have taken part in an unofficial referendum on how to choose the territory’s next leader. China asserts it has the right to vet the candidates for Hong Kong’s chief executive and has denounced the poll, which was organized by Occupy Central with Love and Peace, a group of pro-democracy activists. The ire of the People’s Republic doesn’t faze Lam. “We must fight to voice our opinions,” says the retiree. “China promised us autonomy when it took over Hong Kong, but we are feeling fooled.”

The nonbinding vote, which is taking place over 10 days, is evidence of a widening political rift between the Chinese mainland and the administrative territory—one that is having spillover effects on Hong Kong businesses. The city’s 7 million-plus residents, many of whom have seen their living standards stagnate as housing prices have skyrocketed in recent years, are becoming resentful of the tens of millions of mainlanders who cross the border each year hauling empty suitcases waiting to be filled with goodies that are harder to come by (or more expensive) at home.

These tourists contributed about HK$180 billion ($23.2 billion) to retail sales last year, equal to 36 percent of the total, according to Goldman Sachs (GS). Their acquisitiveness has occasionally led to shortages of certain products, notably baby formula. Mainland Chinese were also the main driver behind a 22 percent jump in home prices in the 12 months through March of last year, though the rate of increase has since moderated in response to curbs imposed by the Hong Kong government to discourage speculation.

“I do like shopping in Hong Kong. I can always go to Paris and Milan. That’s where I went last month.”—“Mrs. Wang”

Local authorities have also worked to halt the rush of pregnant women traveling from the mainland to Hong Kong to secure residency rights for their children by giving birth there. After locals griped about being crowded out of maternity wards at city hospitals, facilities were instructed to begin turning away almost all expectant mothers from across the border. That was a blow to Hong Kong Baptist Hospital, which had added beds and hired more doctors to cash in on the baby boom. Baptist’s chief executive officer says his hospital has lost more than $30 million in revenue as a result of the restrictions: “We tried to catch up, but that’s HK$250 million we can’t recoup.”

The pro-democracy and pro-mainland camps are at odds over China’s plans for selecting the next head of the local government when Chief Executive Leung Chun-ying’s term expires in 2017. China promises universal suffrage—but only after a small committee dominated by Beijing approves all would-be candidates.

To protest that decision, Occupy Central launched the referendum. In the six days after polling began on June 20—online and at 15 locations in Hong Kong—more than 740,000 cast votes. Voters are presented with three options for choosing Hong Kong’s next government and are also given the choice of abstaining. The results will not be announced until after balloting ends on June 29.

Benny Tai, one of Occupy Central’s leaders, had told journalists he would be “happy” if 200,000 people participated. The unexpectedly large turnout may embolden Tai’s group to carry out its threat to occupy Central, Hong Kong’s premier business district. The pro-democracy activists haven’t said when their civil disobedience campaign will begin, although they’ve ruled out starting it on July 1, a day traditionally marked by lawful protest marches to commemorate the anniversary of the former British colony’s return to Chinese sovereignty.

Beijing has tried to discourage people from participating in the referendum. The Global Times, a government-controlled tabloid, has derided the vote as a “farce.” Hong Kong’s Secretary for Justice Rimsky Yuen, a member of Leung’s cabinet, noted that within the bounds of the Basic Law, the territory’s de facto constitution, the referendum carried no legal weight, calling it “no more than an expression of opinion by the general public.”

One danger for Beijing: If the leadership continues to inveigh against Occupy Central, it might generate a backlash among Hong Kongers who don’t approve of the group’s tactics. “We may be able to get more sympathy,” Tai told journalists.

Political unrest—even of the non-violent variety—could dissuade more Chinese from visiting Hong Kong. In what might be an early indication of a pullback in spending by mainland tourists, sales of jewelry, watches, and other luxury items plunged 40 percent in April, according to data released on June 3. Credit Suisse (CS) recently pared back its 2014 economic growth forecast for Hong Kong from 3.4 percent to 3 percent, on the expectation that retail sales will stay weak.

It’s not as if affluent Chinese lack other options. “I do like the shopping in Hong Kong,” said Mrs. Wang, a Beijing businesswoman who declined to give her full name when approached at the Landmark, an upscale mall in Hong Kong. But if tensions increase, “I can always go to Paris and Milan,” she said. “That’s where I went last month. Though obviously Hong Kong is closer.”